Revised Defence Offset Guidelines

The revised Defence Offset Guidelines (DOG) were approved by Defence Acquisition Council (DAC) at its meeting held on 23JUL12 and shall be applicable 01AUG12. The press release indicate the following as the salient features of the new DOG:-

Objectives

The objective of Defence Offsets has been spelt out clearly in the revised policy. The key objective of the Defence Offset Policy is to leverage capital acquisitions to develop Indian defence industry by

(i) Fostering development of internationally competitive enterprises,

(ii) Augmenting capacity for Research, Design and Development related to defence products and services and

(iii) Encouraging development of synergistic sectors like civil aerospace and internal security.

 Co-production / Co-development

Distinction has been made between equity and non-equity route. Investment in `kind` by OEMs through the non-equity route (i.e.) co-production, co-development, etc. will be recognized for offset credits, subject to certain conditions.

Transfer of Technology

The revised policy recognizes TOT as eligible for discharge of offset obligations. Investment in `kind` in terms of TOT must cover all documentation, training and consultancy required for full TOT (civil infrastructure and equipment are excluded). The TOT should be provided without licence fee and there should be no restriction on domestic production, sale or export. The offset credit for TOT shall be 10% of the value of buyback by the OEM during the period of the offset contract, to the extent of value addition in India.

Government Institutions

The revised policy allows provision of equipment and/or TOT to Government institutions and establishments engaged in the manufacture and/ or maintenance of eligible products and provision of eligible services. This will facilitate capacity building for Research, Design & Development, Training and Education in DRDO laboratories, Army Base workshops, Air Force Base repair depots, and Naval aircraft yards, etc.

Technology Acquisition

Technology Acquisition by DRDO for a list of specified technologies will be treated as an eligible Offset with a multiplier up to 3.

Tier-l sub-vendors

It has been decided to allow Tier-l sub-vendors under the main procurement contract to discharge part of the offset obligations on behalf of the main vendor. However, overall responsibility for discharge of offset obligations shall rest solely on the main vendor.

Legal jurisdiction

Under the revised guidelines, the agreement between the OEM/vendor /Tier-l sub-vendor and the Indian Offset Partner(IOP) shall be subject to the laws of India.

Extended period

In the earlier policy, offset obligations had to be discharged during the period co-terminus with the main procurement contract. The revised guidelines allow offset obligations to be discharged within a timeframe that can extend beyond the period of the main procurement contract by a maximum period of two years.

Offset banking

Under the existing guidelines, banked offset credits were valid for a period of two years. The period of validity has been increased to seven years under the revised guidelines.

Multiplier for MSMEs

In the discharge of offset obligations relating to direct export, FDI, TOT or investment in `kind` in Indian enterprises through non-equity “route, a multiplier of 1.50 will be permitted where Micro, Small and Medium Enterprises are lOPs. The monetary limits specified by the Department of Micro, Small and Medium Enterprises, Government of India shall be applicable for identification of MSMEs.

R&D collaboration

R&D services (from Government recognized R&D facilities) have been included in the list of eligible services for Offset Credits. This will facilitate R&D collaboration as well as direct purchase and export of R&D services related to eligible defence products from both public sector and private sector enterprises.

Flexibility

In exceptional cases, the competent authority may permit change in offset partners or offset components provided the value of offset obligations remains unchanged. This will provide greater flexibility in implementation.

Penalty

The overall cap on penalty will be 20% of the total· offset obligations during the period of the main procurement contract. There will be no cap on penalty for failure to implement offset obligations during the period beyond the main procurement contract, which can extend to a maximum period of two years.

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